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RETAILING Introduction

- Subir Guha

What Is Retailing?
Retailing is defined as a conclusive set of
activities or steps used to sell products or
services to consumers.
Retailer is the one who links the
producers and the ultimate consumers.
The word retail is derived from the
French word retallier , meaning to cut a
piece off or to break bulk.
Retailing is buying in large quantity from
a whole seller or directly from a
manufacturer and selling the goods/
services to consumer for personal


The Chain:





Bon Marche in Paris in 1852 is said to be the
first true departmental store. In the U.S.,
chain stores began with the founding of The
Great Atlantic & Pacific Tea Company (A&P) in
Retailing in modern form started really in the
1920s. (A&P, Woolworth, United Cigar in US).
Some food chains started selling meat, fruits,
vegetables and diary products under one roof.
The self service supermarket concept became
popular in the 1930s
Technological advancement in packaging
resulted in prepackaging of meat, vegetables
and grocery items. This gave a boost to
retailing because of the convenience

Positive characteristics
1. Choice of wide range from small (500 sq ft)
to very big (hyper market >1,00,000 sq. ft)
- Variety of business (products very large
(food items- restaurants/textile garments)
2. Franchisee option / own retail store choice.
3. Easy mobility because the principle and
concepts are the same everywhere.
4. People oriented industry.
5. Fairly stable and secure business many
retail businesses are least affected by
recession in the economy (like food).


6. Not dependent on few vendors / customers.
7. Success / growth of organized retail
sector is tried and tested.
8. No scope or individual bargaining.
9. Constant growth and innovation
exist in retail business.
10. Negative working capital requirement.
Negative characteristics
a) Low initial return.
b) Easy negative publicity.
c) Non-standard and long working hours.


Hypermarket or Super centers: Offers highly
diversified merchandise grocery, toys,
hardware camera, electronics. Spans more
than 1 lac sq ft of space, sporting goods etc.
Located outside city centre. Eg: Wal-Mart,
Carrefour Big bazaar, Spencers
hypermarket, Trent Star India.
Supermarket: It is focused on foods, grocery
and household items and is generally
located in residential areas.10,000 to
30,000 sq ft. Food world is an example.
Departmental Store: It carries various
departments such as apparel, house ware,
furniture, jewellery, appliances. Much
smaller than a hypermarket in terms of
space and SKUs. 30,000 to 1 lac sq ft.Eg:
Shoppers Stop, West side, Life style, Ebony.


Convenience Store: Accessibility is what this
format offers. It is conveniently located in
crowded neighbourhoods. Open long hours
and 7 days a week. 2000 to 3000 sq ft. Eg:
Convenio, 7-Eleven.
Exclusive Outlet: These stock a single brand.
Can be company owned or franchised. Eg:
Raymond, Vimal, LG, Samsung, Titan.
Discount Store: These provide no frill
service. These focus on providing items at a
cheaper price. Subhiksha is an example of
Cash-n-carry: This is a B2B format. Here the
retailer sells it to large institutional
customers. Metro (in Bangalore, Hyderabad,
Mumbai, Kolkata) is an example.

Retailing in India is one of the significant
contributors to the Indian economy and accounts
for about 10% of the GDP and employment of
around 8%.
It is expected to grow at a rate of 25% because
rising income, changing lifestyle and
demographic patterns.
However this sector is in a highly fragmented
state as per estimates over 12 million outlets
operate in the country. But only 4% of these are
larger than 500 Sq ft in size.
As against 12 million outlets in India there are
only one million in USA but it caters to a retail
market which is almost 12 times larger.
Per capita retail space in India is 2 sq ft where as
in USA it is 16 sq ft.

The retail sale was around $380 billion in 2008,
compared to $300 billion on 2007. According to a
study by the Associated Chambers of Commerce
and Industry (ASSOCHAM), year-on-year growth
will remain between 30-35% and is likely to reach
more than $450 billion by the end of 2010.
Food & Grocery. 77%
Clothes 7%
Durables. 4%
Health & Beauty 2%
Home furnishing 2%
Medical services 2%
Books & Music.. 1%
Footwear 1%




The Q409 BMI India Retail Report predicts that

total retail sales will grow from US$357bn in
2008 to more than US$711bn by 2013. Strong
underlying economic growth, population
expansion, the increasing wealth of individuals
and the rapid construction of organised retail
infrastructure are key factors behind the
forecast growth. As well as an ever-expanding
middle- and upper-class consumer base, there
will also be opportunities in Indias tier II and
tier III cities. The greater availability of personal
credit and a growing vehicle population that
provides improved mobility also contribute to a
trend towards annual retail sales growth of 15%
in US dollar terms.


Indias nominal GDP was US$1.17trn in 2008.
Average annual GDP growth of 6.5% is predicted by
BMI to 2013.With the population forecast to increase
from an estimated 1.19bn in 2008 to 1.27bn by 2013,
GDP per capita is expected to expand by nearly 59%
by the end of the forecast period, to reach a
projected US$1,563. Our assumption of consumer
spending per capita is for a rise from US$594 in 2008
to US$1,105 in 2013. The growth in the overall retail
market will be driven, in large part, by the explosion
in the organised retail market. By this, we mean the
familiar Western concept of chain outlets,
department stores, supermarkets, etc. According to
Investment Commission of India (ICI) data, this
segment accounted for US$12.1bn of sales in 2006,
or 4.6% of the total retail segment. BMI forecasts that
organised retail sales will reach US$76.2bn by 2013,
representing 10.7% of the total.




Economic development
Improvements in civic situation and
Proactive social changes.
Increase in bargaining powers of the
Changes in supportive Govt policies.
Increased investment in retailing.
Spread of IT.





GDP growth has been 9% before melt down. It is

expected to be 5 to 6% now.
Increased disposable income leading to greater
purchasing power.
Big business houses have entered in retail sector.
Availability of quality retail space .
People seeking convenience and ambience: mall
Quality, brand and fashion consciousness.
Upsurge in bank lending / credit card facilities.
Changing demographics: 60% of people below
35 years of age . Growth in spending power of
consuming segment. Dual income families on the
rise. Increase in number of women working.


Barriers to financing: Lack of industry status.
Government has allowed 51% foreign direct
investment (FDI) in the India retail sector to
single brand shops only. This has made the
entry of global retail giants to organized
retail sector in India difficult. But the global
retail giants like Tesco, Wal-Mart, and Metro
AG are entering the organized retail sector
in India indirectly through franchisee
agreement and cash and carry wholesale
Absence of many global players in pure
retailing is inhibiting technological growth
and professionalism.


Supply chain bottlenecks: Distribution logistics
constraints, wastages of farm produce up to
They fail to match the certain services that
Kirana shops provide in India.
Lack of trained and skilled manpower. Severe
shortage of competent retail professionals.
Structural impediments: Low urbanization.
High cost of real estate and pro-tenant rental
Complex taxation system.


India's organized retail sector will witness a
slowdown in 2009. The sales growth will go down
to 8-10 per cent as against 34% in 2007.
As per KPMG report the country's retail sector
saw a sales decline of 11% due to adverse
impact on footfalls, low conversion ratio and
working capital availability, among others
As per the report the slow down in organized
retail might continue for 12-18 months, whereby
India will not achieve her 2012 target. Revised
estimate of Organized retails share is 10.4
percent of the overall retail market by 2012,
against an earlier estimate of 16 percent .
( Current share of organized retail is around 5 %)



Slowing sales resulting in lower inventory turnover

and increasing working capital requirements to fuel
growth have resulted in liquidity pressures for
many domestic retailers, KPMG official.
As a result of the slowdown in footfalls retailers are
taking alternative measures. Be it store
rationalization, change of supply chain,
consolidation of operations, improvement in IT
infrastructure, retailers need to think quick to
protect their margins, - Neil Austin, KPMGs Global
Head of Markets.
As per the report, retailers are expected to focus
more on food and consumer goods rather than
lifestyle products. They may concentrate more tier
II and tier III cities as incomes in cities dries up.



The Future Group and Reliance Retail have put on

hold their cash & carry operations. Subhiksha have
halted operations. Aditya Birla Retail and Reliance
Retail have also closed several stores to conserve
cash. Cash-strapped Vishal Retail is closing stores
and has no plans to open more next year, but will
expand through the franchisee route, .
Global organized retailers - Wal-Mart, Tesco,
Carrefour have been waiting to enter the Indian
market. But now they are weary because large
domestic retailers have held back expansion
plans .
But analysts are optimistic that retailers will restrategize and overcome the problem. Real estate
rentals (a high component of cost) have fallen
which will work in the retailers' favour.

Retail strategy and


Retailing Concept

Retail strategy
A retail strategy identifies the following:
The target market the segment of the
market the retailer wants to focus on.
The retail format which represents the retail
mix which comprises of the merchandise/
services, pricing policy, advertising/
promotion programme, location, store design/
visual merchandise. The retail mix must be
directed towards the needs of the customer.
A sustainable competitive advantage which
enables the retailer to have an edge over its
competition with a futuristic approach.

Developing a Sustainable Competitive

To develop Sustainable Competitive advantage
over its competitors a retailer must address the
following important aspects of retail business:
Customer loyalty
Human resource management
Merchandise and its display
Supply chain management and vendor
Customer service.
Retail store efficiency
Information system

Developing a Sustainable Competitive


Customer loyalty: This implies the presence of a

customer base that is committed to shopping in the

retailers outlets. Loyalty just does not mean
preference over other competitors but an innate
reluctance to switch over to others. Loyal customers
are the backbone of a business.
An important way to achieve customer loyalty is by
positioning. Positioning is creating a distinctive
image of the retailer in the customers mind relative
to its competitors. A clear concise identity and
image needs to be built in the minds of the
customers. This involves branding the store. The
brand name, logo, slogan are all important
Loyalty (Frequent shopper) programs which are a
part of CRM are designed to enhance customer
loyalty. Purchase information, stored in a data bank
(Data warehouse), are used to design and build
these programmes.

Developing a Sustainable Competitive


Location: This is one of the most important

strategic decisions in retail business, both for a

stand alone retail centre or a retail chain. The
location decides the coverage of the store in terms
of customers who can conveniently patronize the
store on a regular basis. It can be a very vital
competitive advantage .
Conformity with the positioning strategy, proximity,
accessibility, visibility, traffic flow etc are some of
the important considerations while selecting a
store location. The type of store also influences
location decision.
Human Resource management: Retailing is
essentially service marketing. Hence the quality of
employees play a very important part. Need for
efficient and motivated team is essential. Sam
Walton the founder of Wal-Mart called his
employees associates and considered them as
greatest assets of his company.

Developing a Sustainable Competitive


Merchandise and its display : To create a unique

merchandise may be difficult for a retailer because

the competitors also sell the same national or
international brands. Some retailers develop their
own private label brands and thus be distinctive.
Category management relates to decision making
regarding the categories of the items which need to
be kept and prominently displayed.
By employing better visual management techniques
a retailer can gain competitive advantage.

Supply chain management and vendor relationship:

This covers the sourcing and buying decisions. The

volume of buying is one of the most important
negotiating factor as this determines the price (and
the credit period) at which the retailer can

Developing a Sustainable Competitive

buy from the manufacture.
The benefits derived

out of bulk buying can be passed on to the

customer and thus enable a retailer to have a
competitive advantage over its competitors.
Developing strong and special relationship with
vendors can enable retailers to gain exclusive
rights to sell in a particular region or to get scarce
items which are in short supply.
Customer Service: This can be a very significant
competitive advantage. There are two elements of
customer service :
1. Expected customer service This is the service
level that customers demand from any retailer
such as basic courtesy from the retail staff.
2. Augmented customer service These are
activities that enhances shopping experiences
and these are the special customer services
that give retailers competitive advantages.

Developing a Sustainable Competitive

Retail store efficiency : By achieving higher retail

store efficiency than its competitors a retailer

can attain competitive advantage.
The important parameters a retailer needs to
measure and monitor retail store efficiency are :
Space utilization factor this can be
measured by net return/ sq.ft. Space cost in
most of the situations is a major cost
element, so effective space utilization is
Margin to turn over ratio - is a very obvious
financial indicator that needs to be
Employee productivity this is a ratio of
sales to the number of employees.

Developing a Sustainable Competitive

Information system: Superior Information

system can provide substantial competitive

advantage to a retailer over his competitors.
Use of IT helps the retailers in getting the
customers what they want, when they want in a
cost efficient manner. For instance information
flows seamlessly from Wal-mart to its vendors
to facilitate quick and efficient merchandise
replenishment. It results in better inventory
management reducing stock out and inventory
cost. Wal-marts huge database enables it to
fine tune merchandise assortment on a storeby-store, categoryby category basis.

Planning for starting a retail


Important factors to be considered while

planning to enter in to retail business :
1. Evaluation of financial capabilities

a. Consider both internal and borrowed sources.

b. Choice of format (size) can be limited with a
pragmatic evaluation of finances.
c. Detailed analysis and breakup should be done
of startup cost and working capital.
d. Supplier credit may not be available at the
initial stages. This aspect should be
remembered while planning the working

Planning for starting a retail business

2. Finalisation of Store format.

- This is very important, considering the wide range

of formats existent in the market. The following
issues need to be considered:
a. Personal attachment /interest in the product
mix on the part of the retailer is desirable. The
retailer must have reasonable level of
knowledge regarding the product mix.
b. The product mix should cater to the need of the
target clientele.
c. Existence of an established supply chain.
d. Possibilities of expanding and opening
other outlets in future.
e. Strategic choice of high volume-low margin
or low

volume-high margin products.

Planning for starting a retail business

3. Market Research to be conducted.

For determining expected customer profile,

preference, volume (Demographics i.e. age
income, lifestyle, gender, community etc. to be
For determining suitable timings of the store and
style of customer servicing.
For analysis of market competition. It is essential
- positioning the retail outlet uniquely.
- anticipating the competitor's business moves
and thus strategising for the future.
- knowing competitors market share, strategic
focus, vendor relations, locational advantages /

Planning for starting a retail


4. Weighing the advantages of having a retail chain.

Advantages of establishing a retail chain are:

- many departments can be centrally located and
their costs shared by various outlets.
- centralised buying gives power to negotiate
- greater visibility. Enhanced customer loyalty
because of goodwill.
- lower costs of subsequent projects because of
previous experience of implementing projects.
- possibilities of franchising leading to faster

Types of ownership in retailing

1. Independently owned: In this owner only
owns one retail stores
2. Retail chain : In this form there are multiple
retail stores under a common ownership.
3. Franchising: In this the principal company
(franchiser) offers expertise/ technology/ brand
name to others (franchisee) for a fee and helps
in upgrading their operations. Essentially there
are two types of franchisee arrangements
1. Product/trade mark franchising ( eg: petrol
auto dealers etc.)
2. Business format franchising ( eg: McDonalds,
Wimpy etc)

Types of ownership in retailing

4. Leased department: In this the store
leases out a department / specialty store to
an outside party. The lessee (proprietor of
leased department) normally pays a
percentage of sales as rent to the store.
5. consumer Co operative: In this form the
retail firm is owned by a group of customers
who have invested in the company.
Consumers elect officers to manage
operations. They share the profits or
savings that accrue. The principle objective
of co operatives however is to render
services to the members (owners).

Wheel of retailing
Wheel of retailing is
a hypothesis of M.P.
McNair explaining
the patterns of
change in retailing.
The hypothesis is
that new types of
retailers cut prices
by lowering or
customer services,
but once
established they
increase prices and
customer services
and so become
themselves to new,
low-price retailers.

Wheel of retailing
The wheel of retailing is based on four principles:
1. There are shoppers who are very price sensitive
they do not mind compromising on customer
services, wide selection and convenient location
for the sake of buying at lower prices.
2. Price sensitive shoppers are not loyal. They switch
to retailers with lower prices.
3. New retailers often have lower operating costs
than existing retailers
4. Retailers move up the wheel in order to increase
sales, widen the target market and to enhance
their image.
Although the wheel theory was formulated with respect
to the evolution of retailing institutions is the US, it has
been observed to hold good in awide variety of
national settings.

Scrambled merchandising
Scrambled merchandising is offering of merchandises which
are not typically associated with the store type, such as
clothing, cosmetics in a drug store or belts, hats, T shirts in a
shoe store.
There is a tendency on the part of retailers to increase their
width of assortment. Scrambled merchandising takes place
when a retailer adds goods and services that may be
unrelated to each other and to the retailers original business.
Scrambled merchandising is resorted to because of several
reasons : retailer wants to revenues (fast selling or highly profitable
goods are added)
customers make more impulse purchases
customers like one stop shopping
different target markets can be addressed.
impact of seasonality is reduced.

Human Resource Management in

Why is HR so important in retailing?
Retailing is a service industry. Interactions of the
employees with the customers is very high. So
motivated employees are needed. Strong internal
marketing is required in service industries.
Team effort is vital for success
Employee productivity is an important criterion for
retailing. Employee cost is significant in retailing.
Part time employees are often used. Lack of
commitment and skill of such employees can be a
serious problem. High degree of customer contact
can expose this leading to adverse fallouts.

Human Resource Management in


What should be the extent of centralization /

This is an important decision to make.
Centralization is the extent to which the
company may be willing to delegate decision
making at the corporate level, and not at the
local/ regional/store level.
Highly centralized decision making structure is
common among large international retail chains.
Their success can be largely attributed to the
centralized system of decision making and
operation that they have perfected. Indian
retailers are trying to master a centralized
system of operations.

Human Resource Management in

Advantages of centralization are:
Lower manpower costs: Centralized system of
decision making enables the elimination of certain
designations at store level, resulting in lower
Efficient buying: With the help of centralized
structure, the retail chains can buy at a lower price
due to bulk and efficient buying.
Better quality of manpower: This is because it is
possible to pay higher to a few at the corporate
level. The benefits derived from their expertise are
shared and enjoyed by al the stores.
Economy of scale in advertisement: Centralized
advertisement enables good media bargains.
Maintenance of confidentiality: Franchises do not
have access to key secret data regarding
merchandising, procedures, systems, prices etc.

Human Resource Management in

Disadvantages of decentralization:
Bureaucracy: Store managers have to take permission,
even to make small changes, from the corporate
personnel. They have no scope of creativity.
Non fulfillment of local demands: Customizing according
to regional/ local taste is not possible. Indian tastes/
preferences for many items vary from state to state.
Slow response to changes: Difficulty in meeting local
Higher distribution costs: The cost of transportation
from centralized warehouse to individual stores have to
be borne extra by the retail company.

Human Resource Management in

What are the major divisions of a large
retail chain stores?
Strategic management whose tasks are:


develop a retail strategy

identify target market
determine retail format
design organizational structure
select locations of stores.

Merchandising management whose activities

Buying merchandise

Select and identify vendors

Evaluate vendors
Negotiate price with vendors
Place orders on vendors.

Human Resource Management in

Controlling merchandise strategy
Making budget plans
Ensuring timely supplies
Reviewing stock positions and taking actions to replenish

Pricing the merchandise

Store management whose major tasks are:

Recruitment and training of store personnel

Planning work schedules
Evaluating personnel
Maintaining store facilities
Receiving merchandise
Locating and displaying merchandise. Taking care of
Assisting customers
Taking feedbacks

Human Resource Management in

Administrative and support management. It is
the support wing of the retail management
responsible for :

Promoting the company and merchandise.

Managing HR functions
Ware housing and logistics.
Establishing financial controls.

Retail store location

Retail store location

Store location is one of the most important decision
made by the retailer. A right or wrong choice of
location of a store could be the difference between
business failure and success.
While choosing a store, location is one of the prime
consideration of a customer. Hence location
decisions can be used as a sustainable competitive
Relocating a store is extremely difficult, so a
judgment regarding store location should be well

Retail store location

Retail store location

Retail store operations

Retail Store Operations

Why is retail operations so critical in
Retail stores is the interface with the
customer. Mistakes at this level can
cause irreparable damage to the
reputation of the retail organizations.
This being at the ultimate delivery end it
is the one that is visible to the customer.
Hence the efficiency with which the retail
outlets are managed are very critical for
the image of the retail organization.

Retail Store Operations

What are the most important tasks to be
performed to effectively control the store
1. Man management:
The retail outlets are generally labour
intensive. To recruit, train, motivate and
train the store employees is itself a big and
crucial job. To be able to build up a loyal
and motivated team at store level is very
important. Wal-Mart , for instance
considers this aspect of business most
vital and so Sam Walton called the

Retail Store Operations


2. Receiving merchandise:

This task involves receiving and checking

the merchandise when it arrives at the store
from the central store or directly from the
vendor. Activities to be performed are
tallying, counting the goods, checking for
damages, code numbers etc.
3. Displaying the merchandise:
Merchandise display is a very important
activity. This needs planning because the
merchandise requires to be displayed
logically and appropriately this an art .
Stores personnel need to constantly arrange

Retail Store Operations

4. Preserving the merchandise:
This involves right storage and material
handling practices. Perishable goods having
specified shelf life pose greater problems.
5. Providing customer service:
This involves attending to customer queries,
complaints, grievances, suggestions etc
6. Handling rejections:
It is essential to return the rejected/
damaged item immediately to the
warehouse/ vendor.
7. Checking store merchandise:
Regular checking of items on the shelves for
missing price tags or damaged items needs

Retail Store Operations

8. Verifying physical stock:
The tally of the physical stock and the stock
shown as available on computer need to be
done on a periodic basis.
9. Controlling shrinkage:
Systems need to be in place to avoid
pilferages / wastage. Research has shown
most of the times it is the staff who are
responsible for shrinkage.
10. Indenting:
This is a key function which involves
providing timely and correct information to
the buyer (in the organization) regarding the
quantities of the SKUs that need to be
replenished. ERP systems have made this

Retail Store Operations

11. Administrative and maintenance functions:
The equipments and assets of the store
needs to be maintained in a planned
12. Evaluating store performance:
There are several parameters used for
evaluating store performance. Some of
them are
a. Sales / Sq meter.
b. Sales to staff ratio.
c. Expenditure under different heads to sales ratio.
d. Customer count per week or month
e. Average sales per hours.
f. Analysis of sales during peak and lean periods
g. Average sales / footfall.

Retail Store Operations

What are the roles and responsibilities of a
store manager? What are critical points he
should address?
Some of the key responsibilities of a retail
store manager are:
Designing & executing plans to increase
sales & profits, reduce shrink and control
costs. Managing all aspects of the
operations of the store in order to ensure
maximum sales as well as profitability.
Enhancing customer satisfaction via
maximizing the shopping experience of
customers. That is Promoting &
maintaining superior customer service

Retail Store Operations

Communicating company objectives,
strategies, policies and procedures to retail
Store level Staff and management.
Directing & monitoring merchandising levels
& product presentations.
Providing the daily/weekly/ monthly flow of
reports paperwork to relevant departments
& authorities.
Protecting company assets through the
implementation of Risk management, and
loss prevention
Managing the day-to-day store operations
inclusive of having a clean, safe and wellmaintained interior and exterior retail store

Retail Store Operations


The job of a retail store manager essentially is

to oversee the everyday running of a retail
store. He must possess the required
organizational skills which includes the ability
of paying attention to detail as well as
coordinating and following-up matters. The
job requires the ability to manage multiple
priorities and management skills to plan,
enforce discipline, communicate, train, and
Critical points for a stores manager to
remember :
Servicing the customer comes first Customer is the king so make the customer
feel special.
Appearances do matter - Display

Retail Store Operations

Getting rid of Unsold / slow moving

merchandise It should be done in a planned

manner. The product lines that are not selling
well should be marked down (discounts) to
sell them off fast.
Timely ordering of inventory - Inventory
levels should be monitored and kept in
adequate amounts at all times or else
customers may be lost for ever.
Hiring the right people; training & motivating
them -Ensure right work distribution and
management of staffs time is done with the
changing priorities during a day.
Effective use of retail software - Software are
available for wide range of store activities like
inventory management, Point Of Sale (POS),

Managing store employees

What are the main aspects involved in

effectively managing employees in retail

Recruiting and selecting the store

Orientation and training of store employees
Motivating and managing the store
Evaluating store employees and providing
Rewarding and compensating the store

Managing store employees


Recruiting and selecting the store

The following steps need to be undertaken for
recruitment of a store employee

Job analysis
Locating prospective candidates
Screening applicants ( short listing) to interview
Selecting applicants

Job analysis: Job analysis is a systematic procedure

to analyze the requirements for the job role and job
profile. Job analysis can be further categorized into
following sub components.
1. Job position: This refers to the designation of the
job and employee in the organization.

Managing store employees

- Recruiting and selecting the store
2. Job description: It refers to the activities that an
has to do in a particular job position. It
describes the roles and responsibilities attached with
the job position. It states the key skill requirements,
the level of experience needed, level of education
required, etc.
3. Job Worth refers to estimating the job worthiness i.e.
how much the job contributes to the organization. It is
also known as job evaluation. Job description is used to
analyze the job worthiness. Roles and responsibilities
helps in determining the outcome from the job profile.
Once it is determined that how much the job is worth,
it becomes easy to define the compensation strategy
for the position.

Managing store employees

- Recruiting and selecting the store

Locating prospective employees: Getting suitable

people in retail industry is very important but at times
very difficult.
For recruitment at the store level, Levy & Weitz
suggest the following:
Look beyond retail industry
Use your employees as talent scouts
Provide incentives for employee referrals
Use your store front creatively.
Internet is becoming a popular method of advertising
a vacancy and source for locating prospective

Managing store employees

- Recruiting and selecting the store

Screening applicants for an interview: The job

analysis done previously helps in short listing
candidates. The job description specifies the
competencies required for a job position, hence this
forms the guideline for short listing the applicants. The
application form gives the details regarding the
applicants qualifications, experience, previous
compensation, employment history, reasons for leaving
previous organizations, health history, references etc.
References should be used, in a discerning and
judicious manner, to verify information provided.
Scientific and psychological tests related to intelligence,
ability, personality etc helps to gain insights about the

Managing store employees

- Recruiting and selecting the store

Selecting Applicants: Personal interview is carried out
for this. The following needs to be done:

Preparation for the interview: An interview needs to be

conducted effectively hence it needs preparation on the
part of a stores manager . The purpose is to effectively
gather information about the candidate from the candidate
Behavioral interview is a popular method adopted for this
purpose. Behavior based interviewing focuses on
experiences, behaviors, knowledge, skills and abilities that
are job related. It is based on the belief that past behavior
and performance predicts future behavior and
Conducting the interview: Broad based questions should be
followed by specific questions. Questions should be posed
in a manner so that it calls for long responses. Loaded or
leading questions should not be asked.
Interviewer should be a good listener and be able to sort
out relevant / important information related to the job from
the irrelevant/ unimportant ones.

Managing store employees

- Orientation & training of new store
Orientation Programs: Effective orientation programs are
designed to introduce new employees to a company's mission
so that they begin to feel they are a vital part of the team.
These are key to early productivity and improving employee
retention. They need to be designed with the following in
- Make new employees feel welcome and valued as key
players on the team.
- Explain the mission/purpose of the company and the job
employees can see the big picture.
- Familiarize employees with rules, policies and procedures.
- Help employees adapt to their new surroundings, learn
who all the players are and how they work together.
- Establish friendly relationships among co-workers
- Ensure new employees have all the information and tools
they need to do their jobs.
- Develop the long-term commitment to the organization.

Managing store employees

- Orientation & training of new store

Training of store employees: These include both

structured and on the job training.

Structured training programs: These are designed to
impart knowledge and basic skills that are needed to
execute their jobs. Sales persons for instance are taught
the company policies to deal with customers, product
knowledge required to sell, use of POS terminals etc.
These should be designed to be short and effective.
On the job training :It is the responsibility of supervisors
and managers to train, qualify, and develop the new
employees. The new employees learn their jobs while
they are performing their duties under the guidance,
coaching and supervision of their seniors. The new
employees should be allowed the freedom to try various
ways of doing their jobs. The seniors should help them to
analyze their mistakes and successes and learn from
their success and failures

Managing store employees

- Motivating & managing the store
Managers must provide effective leadership.
For doing this managers need to perform
Task performance management: These are related
to planning, organizing, motivating, evaluating and
coordinating activities
Group maintenance management: These are
related to promoting teamwork and job satisfaction.
Democratic, Autocratic, Transformational leaders:
Autocratic leaders do not involve their subordinates
during decision making process. They make the
decisions and convey the same to their juniors.
Democratic leader on the other hand involves his
juniors while making decisions. He seeks opinions/
information from the juniors and also shares his
power and information with them.

Managing store employees

- Motivating & managing the store

Transformational leaders: Transformational leadership

inspires followers to trust the leader, perform
behavior that contribute to the achievement of
organizational goals, and perform at a high level.
Transformational leadership occurs when a leader
transforms, or changes, his or her followers, in three
important ways that together result in followers
trusting the leader, performing behaviors that
contribute to the achievement or organizational goals,
and being motivated to perform at a high level:
1. Transformational leaders increase subordinates
awareness of the importance of their tasks and the
importance of performing them well.
2. Transformational leaders make subordinates aware
of their needs for personal growth, development and
3. Transformational leaders motivate their
subordinates to work for the good of the organization
rather than exclusively for their own personal gain or

Managing store employees

- Motivating & managing the store
Motivating employees:
Setting goals or quotas
Connect effort with performance
Connect performance with rewards

Maintaining morale
Following helps help in maintaining morale:
Daily meeting on daily basis before opening of
the store.
Educate the employees regarding firms
finances, set realistic goals, celebrate
achievement of goals.
Make employees important by displaying their
names on the jobs they have done.

Managing store employees

-Evaluation of employees & providing

Evaluation system is designed by the HRD. But

evaluation should be done by the immediate
supervisor. Supervisors should to trained to
Mostly done once or twice in a year. But should be
more frequent when inexperienced employees are
being evaluated.
The employees need to be communicated regarding
- the tasks expected from them - the expected
performance level - the method of evaluation.
A formal and informal feedback system should be in
existence. The basic objective of the feedback
should be to allow and encourage the employees to
take corrective steps.

Managing store employees

-Rewarding & compensating the store

Two types of rewards are given to store

employees for their work :

Extrinsic rewards are in the form of

compensation in monetary terms ,
promotion and recognition given by the
Intrinsic rewards are what the store
employees get personally for doing the job
well. It comprises of job satisfaction because
the job is challenging.

Managing store employees

-Rewarding & compensating the store
Types of compensation programs:
On percentage of sales
Fixed salary + incentive or total incentive.

Quota bonus plans bonus given when the

quota is exceeded.
Group incentive plans additional incentive
based on the performance of the department.

Controlling costs in retail stores

The critical areas in controlling operating
costs in retail stores are:
Increasing personnel utilization / labor
Store maintenance activities
Energy management
Reducing inventory losses

Controlling costs in retail stores

-Increasing personnel utilization/labor
Employee costs in stores is the largest operating

expense and hence needs to be monitored

Labor scheduling is difficult and complex in retail
stores because

Multiple shifts
Use of part time workers for 12 hrs and 7 days in a week
Variation in customer traffic during the day and week
Normal shopping patterns, hence the requirement of
staffs/ workers, are affected due to weather, holidays and
sales promotions.

Because of the above reasons many stores use

computer software to do labour scheduling in stores.
Sensibly reducing staffing during lean hours does
not affect the sales.

Controlling costs in retail stores

- Stores maintenance activities
The cost of maintaining the interior and the exterior of a
store can be substantial.
The activities related to maintaining the store is critical
because it affects the sales generated and also the life
of the assets. Well maintained stores attracts customers
and is a basic necessity for the goodwill of a store.
Hence it is important and the money should be
judiciously spent.
The maintenance of the interior includes activities
related to the upkeep of the flooring, walls, ceiling,
racks, air conditioning units, elevators, signage inside
the store,, paintings, counters etc.
The maintenance of the exterior includes activities
related to the upkeep of the parking lot, roads, boundary
walls, external signage etc.

Controlling costs in retail stores

- Energy management
Retail operations are energy intensive enterprises.
Hence the performance and profitability of a retail
stores is highly dependent on efficient energy
management systems adopted by the stores.
The energy costs in stores include the costs of
lighting, air-conditioning, operating the elevators/
escalators and other utilities.
The use of energy conservation devises and
practices have become a must for controlling
energy costs. Such devices/ practices are use of
photo sensors to monitor the lighting, escalators
and air-conditioning requirements of a particular
area, considering the use of natural light while
designing the stores etc. Devices controlling waste
of water is popular.

Controlling costs in retail stores

- Reducing inventory losses
Shrinkage is one of the major issues in retail
stores management
Shrinkage is the difference between the
recorded value of inventory (at retail prices)
based on the merchandise bought and received
and the value of the actual inventory (at retail
prices) in stores and distribution centers divided
by the retail sales during the period.
Say: Inventory as per record = Ir . Actual
inventory count (observed)= Ia . Sales = S
Then Shrinkage % = [( Ir Ia) / S] x 100
The loss on account of shrinkage ranges from
1% to 5% of sales.

Controlling costs in retail stores

- Reducing inventory losses
Shrinkages due to shop lifting (theft by

customers) can be reduced by taking up following

Proper store design/ layout:
Special security arrangements for areas near store entrances,
delivery areas and dressing rooms.
Providing clear visibility lines to store employees near entrance
and exit by reducing rack heights so that they can see customers
in the stores.
Dressing room entrances should be visible to store employees
Possible areas where theft can occur should be near places like
Cash wrap which are always staffed. ( Cash wraps are places
where customers have their purchases placed in a bag)

Employee training:
They should be trained to be observant, alert and visible.
Possible shoplifters should feel that employees are around.

Controlling costs in retail stores

- Reducing inventory losses

Security measures:

Closed circuit TV some live and some dummy. Live CCTVs are
expensive so sometimes dummies ( non operating equipments
looking like TV cameras) are put in places to deter shoplifting.
Chaining expensive merchandise so that they can not be
removed by customers.
Placing Convex mirrors in proper positions so that a wide range
of area can be viewed with the help of the mirror.
EAS (Electronic article surveillance) systems is a method that can
be adopted to prevent shoplifting. In this system merchandises
have special tags placed in them. These are removed while
purchases are made. When a shoplifter tries to pass a detection
device at the exit, an alarm is activated.
Presence of guards, mirrors, CCTV can be an unpleasant
experience for shoppers. But EAS is a good method because it is
inconspicuous so it does not make the customers uncomfortable
and shopping experience unpleasant.
Many retailers believe that prosecuting shoplifters is a good

Controlling costs in retail stores

- Reducing inventory losses

Shrinkage due to employee theft:

Research has shown that inventory loss due to employee

theft is higher than due to shoplifting. So this needs to be
seriously addressed. Some of the ways this can be are:
By creating a trusting and supportive work environment that
encourages honesty and integrity. Employees must be made to
feel that they are respected members of a team. Building up a
highly committed team is essential.
By properly screening prospective employees. There are some
honesty tests designed for this purpose.
By the use of security personnel to keep a watch. In addition to
uniformed guards security personnel in plain clothes posing as
shoppers are often used.
By adopting/ establishing security policies and control systems
that deter theft:
Regularly checking trash bins where stolen items can be
Employees enter/ exit through designated entrances.
Changing locks periodically
Checking locker rooms of the employees.
Providing customer receipts to all purchases made.

Stores design, Layout,

Space planning & Visual

Stores Design
Stores design plays a very important role in
retail strategy because it :

Enhances the image of the retail outlet

Attracts new customers
Creates a definite USP
Generates excitement
Facilitates easy movement inside the store
Facilitates access to merchandise inside the store
Ensures optimum utilization of retail space
Ensures effective and desired presentation of
Reduces product search time for the customer
Reinforces the marketing communication of the outlet
Influences the service quality experience

Stores Design

There are certain basics of a good store design.

Store design should be such that :
It is consistent with the stores image

Both the external and internal design should be in line

with the type of image the retail organization wishes
to create in the minds of the customer. For instance a
discount stores should have a no-frills stores design to
give the perception of low overheads.

It influences consumer behaviour positively:

This objective is fulfilled by having the appropriate

layout. For instance a grocery stores are organised to
facilitate an orderly shopping trip and to display as
much merchandise as possible. Yet boutiques are laid
out in a free-form design that allows customers to
browse. The purchasing behaviour of a customer is
influenced by stores atmosphere.

Stores Design
It considers Costs Vs Value:
The costs associated with store design should be
commensurate with the value received in terms of
higher sales and profit. Design should be cost
effective in terms of space utilisation.

It has flexibility:
This is required to make periodic changes in plan or
to give the store a new and fresh look. Flexibility can
be incorporated by having modular designs so that
the store components can be easily moved and the
store components can be modified. As merchandise
mix changes the design needs to changed so
flexibility is very desirable property of store design.

Atmospherics is the store's physical characteristics
that are used to develop a retail unit image and
draw customers.

Atmospherics refers to the design of a stores

atmosphere, to stimulate customers perceptual
and emotional responses and thus affect their
purchase behaviour. This is achieved with the help
Visual communications

Four key components of atmospherics:
1.Exterior atmospherics

2. Interior atmospherics

3. Store layout

4. Visual merchandising

Exterior Atmospherics
Exterior atmospherics
All aspects of the physical
environment found outside
the store are external
This significantly affects store
traffic and sales
Elements of Exterior
atmospherics are:
Marquee ( it is the sign that
displays the stores name)
Unique building design
Surroundings of the store

Interior atmospherics
Interior Atmospherics:
Interior atmospherics refers to
all aspects of physical
environment found inside the
Key ingredients of interior
atmospherics are flooring, walls,
Lighting, colour, music, scents,
store fixture design, paintings
and level of cleanliness
This affects sales, time spent by
the customer in the store, and
approach/avoidance behavior of
the target segment
The quality of interaction with
the store personnel influences
interior atmosphere.

Store Layout
Store layout:
It is the interior retail store arrangement of
departments or groupings of merchandise.
It is the physical organization of astorethat creates
specifictrafficpatterns, assists in the presentation of
merchandise, and helps to create a particular
Efficient store layout pays adequate attention to
- the expected movement of the customers
visiting the store
- space allotted to customers to shop
- adequate facilities for merchandise display
Customer friendly store layouts motivate shoppers to
move around the store and shop more than what they
had planned

Store Layout
Logical sequencing and category adjacency is
essential in planning store layout
Store layout planning involves decisions about
allocation of floor space, product groupings, and
nature of traffic flow

Store Layout
Types of retail store layout:
Grid layout
Race track layout
Free form layout

Store Layout
Grid Layout
It is a layout or arrangement
in which the retailer arranges
the merchandise in gondolas
or racks. This type of layout
helps the customer to easily
locate the merchandise.
Grid layout is generally
found in grocery stores,
discount stores, drug stores
Its characteristics are:
Long gondolas in repetitive
Easy to locate merchandise
Does not encourage
customers to explore store
Allows more merchandise
to be displayed
Cost efficient

Store Layout
Advantages of Grid layout
Low cost
Customer familiarity
Merchandise exposure
Ease of cleaning
Simplified security
Possibility of self- service

Disadvantages of Grid layout

Plain & uninteresting
Limited browsing
Stimulation of rushed shopping behavior
Limited creativity in decor

Store Layout
Race Track Layout
Its a type of store layout that provides major aisle to
facilitate costumer traffic.
Different departments are allotted separate space. So
it is also called shop-in-shop layout. It provides easy
accessibility to all the department of the store.
This type of layout is adopted by departmental stores.
The objective of the design is to get the customer to
visit multiple stores
Different departments generally distinguish
themselves by distinctive decor and carpet flooring.
The entire layout of the retail layout is done in such a
way that a customer can view many shops standing
in a particular position.
It increases impulse purchase.

Store Layout
Race track layout has a loop with a major aisle that has access
to departments and stores multiple entrances.
Draws customers around the store.
Advantages are that 1. Facilitate customer traffic.2. Easy
accessibility to all departments. 3. Encourages impulse buying.
Disadvantage is that it requires large space.

Store Layout
Free Form Layout
Fixtures and aisles
Pleasant relaxing
ambiance doesnt
come cheap.
Abundant open space
with select furniture
and fixtures.
Inefficient use of
More susceptible to
salespeople can not
view adjacent spaces.
Used in specialty
stores and upscale
department stores.

Store Layout
Allowance for
browsing &
wandering freely
Increased impulse
Visual appeal

Possible confusion
Waste of floor space
Difficulty of

Space Planning
Space Planning:

The factors considered for effective space planning in

a retail store are:

The space allocation, both at the departmental and
category level is done keeping in mind the profitability
of the department or the category in mind.
Space allocation is an ongoing exercise. The seasonal
fluctuations in sales of a category has to be borne in
mind while allocating space.
Product shelf life is a factor that decides the quantity
that can be stocked in the shelves.
Presentation methods for different items differ. Space
allocation has to consider this aspect.
Special sales during a period or after an advertisement
campaign may call for an additional space for a
Future sales potential of a category is also kept in mind
while allocating space.

Space Planning
Types of spaces generally required in stores:
Back room
Office & functional spaces
Wall merchandising space
Floor merchandising space
Aisles, service areas & other non selling area of the
main sales floor.

Visual Merchandising

Visual merchandising:
Visual merchandising or display is the
presentation of products in order to sell them
Key aspects: store floor plan, store windows,
signs, merchandise display, space design,
fixtures and hardware
It goes beyond merely arranging merchandise
for easy access to customers.
Process is set in motion with designing the
floor plan of the store, placing of mannequins,

Visual Merchandising
Popular presentation techniques are:
Visual merchandising innovative shelving
Category wise presentation - logical display
Tonnage merchandising large quantities displayed
to give an impression of bargain sale.
Exclusive displays of high return items like watches,
jewellary etc.
Impulse purchase location is important Eg: check
out areas, area near cash counters display items
like batteries, news papers, chocolates, chips etc.
Live setting presentations like mannequins,
furniture setting displays.
Promotion areas attract customers so, often they
are kept at the end of departmental stores.

Buying & Merchandising

Subir Guha

Definition of Merchandise
Planning and implementation of the acquisition,
handling and monitoring of merchandise categories for
an identified retail organisation.
The definition highlights that following activities are
covered under the ambit of merchandising management :
Forward planning to cater to the changing consumption
tastes and demand related to the merchandise.
Effective acquisition of the merchandise from either the
wholesalers or manufacturers.
Appropriate handling of merchandise in order to ensure
that the merchandise can be sold in perfect condition.
Monitoring all aspects of the process to ensure that the
merchandise is available at the places, times, prices
and in the quantity that enable the retailer to achieve
adequate returns from the buying of the merchandise.

Merchandising philosophy and

For a successful retail strategy it is essential
to have a sound merchandising philosophy.
The merchandising philosophy must reflect and
take into consideration:
the desires of the target market.
defined value chain
Supplier capabilities.
product trends.

Merchandising philosophy and

A merchandising philosophy guides all
merchandising decisions such as:
The assortment (of categories) across the store
(narrow or wide).
The brands with in each category. (deep or
The sizes/ variables within each brand.
Type of brands international/ national / local.
pricing policy across each category and within.
uniformity or customisation of assortment
within its various stores.

Scope and functions of

While forming its merchandising philosophy, the
retailer must outline the roles of merchandise and
in-store personnel That is assign the
responsibilities and functions of buying and selling.
While doing the above, retailer can take two
views : 1. Merchandising view 2. Buying view.
In merchandising view its merchandise personnel
oversee all buying and selling functions, including
assortments, advertising, pricing, point of sales displays,
deployment of personnel, personnel selling approaches.
In buying view, the merchandise personnel oversee the
buying of products, advertising and pricing, while instore personnel oversee assortments, displays,
personnel deployment and sales presentation.

Centralised and decentralised


One of the most important decision a retailer has

to take while organising the buying function is

whether it should be centralised or decentralised.
Buying, in most of the organised retail businesses,
is a centralised operation. Buying offices are
located at or near the company head quarters.
Advantages of Centralised buying are:
Centralised buying offers the advantages of bulk
buying. Bulk buying gives greater buying power which
enables the buyer to negotiate better prices and credit
Sales data can be aggregated to improve forecasting.
Economies of scale are achieved as sourcing and
selection costs are lower.

Centralised and decentralised

Quality of manpower is better because it is possible to

pay higher to the few at the corporate level. Specialist

buyers can devote more time to product analysis.
A better quality level is achieved because it allows
better quality control. For instance by having a team of
technologist and quality controllers who work centrally
alongside buyers.
A more consistent assortment is presented in order to
reinforce the retail brand identity.
Quality of buying and stock control decisions are
consistent across outlets.
Centralised advertisement enables good media
Store personnel are freed from buying responsibilities,
allowing them to concentrate on creating high quality
shopping experience for customers in the retail outlet.

Centralised and decentralised


The disadvantages of centralisation are :

The conflicts between stores and head office personnel.

The points of conflict generally are:
store managers have to seek permission from the
head office even for making small changes. It is
perceived as bureaucratic. Slow response to changes
poses difficulties in meeting local demand.
Initial reaction (of the store personnel) to any new
style often negative.
Buyers complain of insufficient or slow feed back from
store personnel specially related to reasons of slow
movement of certain items or newly introduced items.
The cost of transportation from centralised warehouse to
the individual stores have to be borne extra by the

Duties, responsibilities and

qualifications of a buyer
Buying is evidently one of the most important
functions in retailing. Because of its importance, the
responsibility of buying is invariably the
responsibility of the proprietor in a small stores. But
in a large stores/ retail chain it is done by a
professional team whose members are specially
skilled to perform this crucial activity.
The basic elements of the buying functions are:
What to buy?

- is based on assortment decision

during the merchandising planning.

How much to buy? is based on inventory management.
From whom to buy? is based on the sourcing decision.
When to buy?
timing of the stock , reordering
frequency, perishability/ shelf life.

Duties, responsibilities and

qualifications of a buyer

The organisation of the buying department and its

location depends on the policy, size and type of the
retail operation. For instance, In departmental stores
with branches, the buyers operate from the
headquarters usually situated in the flagship stores.
But in large retail chains buyers do not operate from
main stores but from central headquarters
strategically located away from the individual stores.
The responsibilities and duties of buyers and
assistant buyers generally are as follows:
Choosing the vendors for each of the items. Deciding the
quantities to be bought and the timing of the purchase
and delivery of the item. Negotiating the price, shipping
terms and the credit terms. Placement and cancellation of
orders as and when required.
Pricing the items based on the policy . Re-pricing if
required to expedite the sales of slow-moving or nonmoving items.

Duties, responsibilities and

qualifications of a buyer

Selecting the items for special display/ advertisement/

promotion. This involves planning of fashion show,
special events for promotion of specific items.

Recruiting and establishing an efficient buying

team is very vital for the success of the retail
operation. Members of the buying team should
have following qualifications:
preferably a retail management college degree.
sound knowledge of the market and sources of the
strong negotiation skills
good knowledge of the product
fair knowledge of finance and costing ( understand
markup, mark down, open to buy etc).
good analysing and organising skills
interpersonal skill , leadership qualities.
pleasing personality with enthusiastic attitude.

Merchandise planning
Devising a sound merchandise planning is
crucial for success because:
A retail outlet can be of exceptional design,
located most strategically, backed up by the
shrewdest marketing promotion and
manned by the most efficient sales team
but if it does not have the right items at the
right time, at the right price, then it is
heading for a sure failure.
The rapidly changing consumer demand
makes merchandise planning activity all the
more challenging.
It can be a profitable business proposition
only if it buys the merchandise in a planned
and efficient manner.

Merchandise planning
General considerations for a merchandising plan :
1. Market considerations: Store and image, format,
environment, fashion trends, customer base etc.
2. Merchandise strategy options: Assortment profiles and
issues of choice (width and depth), quality, exclusivity,
seasonality of range, estimated cost, promotions.
3. Type of customer base: Items and range purchased,
average transaction value for different lines, frequency of
visits and purchases.
4. Financial considerations: Profitability and sales
performance projections, stock investment/ return, type
of contract and payment terms, corporate objectives and
5. Merchandise assortment evaluation: Ensuring
merchandise meets criteria of : required range, cost, price
range , brand policy, availability, delivery, financial returns

Merchandise planning
devising the merchandising plan following
aspects are to be kept in mind :

needs to be done.
Innovativeness is essential.
Assortment to be determined keeping the needs
of the target segment in mind
- of the products should be aligned to

positioning strategy of the stores

- is important for seasonal products
to individual stores to be done


Forecasting needs to be done at different levels :

- overall projections
- category projections
- item by item projections
- store projections.

Merchandise planning
While forecasting, it is necessary to take into account

different types of merchandise. The different types of

merchandise are:
- staple merchandise consists of regular products carried
by the retailer. These provide continuous business over
an expanded life span. The demand for these items are
fairly stable. Most food products, household cleaning
items are examples.
- Assortment merchandise consists of products for which
there must be varieties (styles, colours, sizes etc).
Examples are garments, footwear etc.
- Fashion merchandise consists of items that have
cyclical sales due to changing tastes and life cycles.
- Seasonal merchandise are items which have seasonal
demand such as air-conditioners, umbrellas, Woolens
- Fad merchandise, a high level of sales is generated for a
short time. Eg;- toys, games etc.

Merchandise planning

Innovativeness :

Innovativeness of merchandise mix refers to the

extent to which new products/ items are included in

the merchandise mix.
The major factors that must be considered while
planning the merchandise-innovativeness are:
- How progressive or conservative the target market
- While including a new item consider what is the
growth potential of the item.
- Whether the new item under consideration is
consistent with the retailers image.
- Whether a strategy to lead or follow the
should be adopted.

Merchandise planning
- Amount of investment ( additional personnel,
specific training requirements, new accessories/
fixtures) required in introducing the new item.
- What is the overall and specific items potential
- What are the involved risks ( investment cost,
opportunity costs of not having the item,
possibility of damage of image if the item fails)?
The growth potential of a product can be determined
by studying the product life cycle. PLC has four
stages with different characteristics 1.Introduction
2.Growth 3.Maturity 4.Decline.
While introducing new products/ items in
merchandise mix decisions regarding dropping/
eliminating existing items becomes necessary due to
constraint of shelf space and other resources. The
elimination of items should also be logically and
rationally done.

Merchandise planning

Assortment :

Assortment is the selection of items that the retailer

displays in the stores.

The important decisions that the retailer has to take
regarding assortment are:
Quality of merchandise by considering the needs
of the target customers, retailers image,
Width of the assortment number of categories.
Depth of the assortment the extent of variety in
each of the category.
Mix is complimentary or not.
Assortment is traffic generating or not.
Space, resources investment required by the width
and depth of the assortment.

Merchandise planning
Important criteria for selecting a particular item are:
- must match the other items in the assortment.
- profitability
- good enough demand.
- speed of movement ( fast/medium/slow moving)
- must match the stores image.
- potential to generate traffic.
- popularity of the product/ brand.
- profitability of the item.
The sources of information regarding item selection are
- competition
- customers
- vendors
- publications
- trade shows

Merchandise planning
Brands :

During assortment planning the retailer decides on the

brand mix.
There are essentially three types of brands:
1. Manufacturer brands national/ international
brands manufactured by large manufacturers.
2. Private brands these are also known as store
brands. These are the brands owned by the retailer.
These are not sold by retailers competitors. Less
expensive for consumers. More profitable to the
retailer. Retailer organises the manufacturing of
these items and solely markets the brand.
3. Generic brands These are a form of private
brands but do not have specific brand-name. These
carry products generic names like Mango juice,
packaged peanuts etc. No promotions are done for

Merchandise planning
A merchandiser must determine when each item is
to be stocked. For new goods he has to decide as
to when they should be first displayed and sold. For
established goods he has to plan the merchandise
flow during the year. Stock turnover greatly
influences the frequency of ordering.

A single unit retailer has to decide how much of
merchandise is to be placed on the floor, how
much is to be kept in stock-room and whether to
use a ware house. A retail chain has to also decide
on allocating items among the retail stores/ outlets
it has.

Execution of Merchandising plan Sourcing

Deciding on the type of vendor to be selected for a

merchandise is a very important decision in buying.

The major types of vendors are :
Wholesalers/ distributors.
Manufactures produce the item/ items in one or more

production units, which can be spread on a national or

international basis. They usually have a sales office or
a showroom, either attached to a production unit or in
a convenient location. Large retailers who can buy an
item in bulk frequently deal directly with a product

Execution of Merchandising plan Sourcing

Wholesalers buy in bulk from the manufactures and sell to

the retailers from their stock. They apply a profit margin to

the products they sell to the retailers. They provide credit,
transportation, information, variety etc to the retailer.
Agents do not buy or take ownership of the products that
they sell. They collect orders from number of small retailers
and make it possible for the manufactures to produce the
item in bulk. They normally work on commission basis.

Wholesalers and distributors are middlemen who help

the manufacturers in distributing their products.

Small retailers do not have a choice but to source
their merchandise from the wholesalers/ distributors
because manufacturers do not cater to small
quantities of requirement. But the large retailers have
the choice of sourcing their merchandise from
distributors or directly from the manufacturer.

Execution of Merchandising plan Sourcing

The direct purchase from manufacturers gives the

buyer the advantage of lower prices and also the

chance of interacting with the manufacturers to
make changes in the design.
But certain factors compel the buyers to purchase
from the intermediaries/ middlemen:
Quick delivery the main duty a wholesaler performs
in the value chain is the storage of merchandise.
From the wholesalers warehouse the buyer can
expect prompt delivery.
Smaller orders .
Wide assortment while manufacturers sell only their
own products, the wholesaler carries the offering of
many manufacturers. This provides the retailer the
opportunity to compare goods and save time.
Easier credit term usually, buyers get liberal credit
terms from wholesalers.

Execution of Merchandising plan Sourcing

The parameters, based on which the retailer must

take the decision of buying from a wholesaler/

distributor or directly from the manufacturer, are:
Prices purchasing it directly from the manufacturer
saves the distributor's cut or the margin kept by the
wholesaler which ranges from 5% to 15%.
Space requirement manufacturers like to send
consignments in bulk. This might require a large
inventory space. Because a retailer deals with a large
number of items the cost the cost of space can be
high if he were to deal only with manufacturers.
Credit terms manufacturers may not offer credit
terms but distributors do. But if a retailer is really large
, manufacturers also offer credit terms.

Execution of Merchandising plan Sourcing

Promotions & advertisements - if a retailer

purchases items directly from the manufacturer the
requirement of promotion schemes can be directly
taken up with the marketing personnel of the
manufacturer. By this he has greater opportunity to
organise exclusive schemes for his retail outfit.

Selection of specific vendor for each item is done

after deciding the type of vendor. The factors
considered for selecting a new vendor are:

Quality of merchandise.
Price and terms of supply of the merchandise.
Vendors reputation and capacity.
Location of the vendor.
Record of timeliness and consistency of supplies.
Authorised source or not.
Response to emergencies.

Execution of Merchandising plan Sourcing

Vendor negotiation is the next step:
This detailed negotiation needs knowledge and
skill on the part of the buyer. A mutually
beneficial long term relationship should be
aimed at. This requires the building of mutual
Following are the important issues related with
negotiation with vendors:

Quantity discounts.
Credit terms.
Timely delivery late delivery clauses.
Transport cost who should bear it ?
Transit insurance cost will be borne by whom?
Exclusivity clause and or sharing of advertising costs.
Issues related to rejections and complaints.

Execution of Merchandising plan Sourcing

Vendor evaluation and monitoring:
Vendors/suppliers to organised retailers are subjected

to regular evaluation or continual monitoring to ensure

that their standards do not fall.
The buying department may carry out this analysis or
it may be the task of a separate department.
The most common method of supplier evaluation is the
weighted multiple attribute evaluation system. The
performance is expressed in terms of quality rating,
delivery rating, price rating & service rating. These are
summed up to obtain the suppliers composite rating.
If the rating of a vendor starts to fall in a significant
way, remedial or corrective steps are taken by the
vendor. Otherwise penalties are incurred.

Execution of Merchandising plan Sourcing

Placement of orders:

Placement of orders is based on the buying system. There

are two basic types of buying systems followed in
retailing : 1.SKUbased system.2.Open-to-buy system.
SKU based system is used for Staple merchandise. The
actual sales of each SKU in every store is very carefully
tracked so that a forecast can be made. This enables a
computer based cycle of order-receipt-order system to be
followed for buying.
Open-to-buy system is used for buying Fashion
merchandise. The demand for Fashion merchandise is
dependent seasonal and environmental changes. The
system does not provide the information as to how much
of a specific item is to be bought but indicates the
amount that should be invested on a category. Inventory
turnover and GMROI (Gross margin return on investment)
form the basis of merchandising budget plan.

Execution of Merchandising plan Sourcing

Purchase order is placed on the vendor giving all the

details pertaining to the execution of the order. There
should be no ambiguity regarding:
Vendor name and address
Description/ specification of the item,
Price and related terms of payment.
Quantity to be supplied,
Delivery schedule.
Inspection details,
Point of delivery (where the title/ ownership of the
goods will be transferred).
Mode of transport.
Packaging details marking details.
The purchase order (contract) specifies the terms and
conditions applicable in the event of rejections/ damage.
After the delivery is made as per the purchase order,
the goods are inspected and received by the respective
teams at the specified point.

Execution of Merchandising plan Sourcing


Transportation of merchandise in time and safe/ secure

condition is of utmost importance.

The effectiveness of transportation depends upon the
availability/ quality of logistics infrastructure consisting
of roadways, waterways,railways, airways, refrigerated
trucks, container facilities etc.
Important points related to transportation decisions:
Frequency of shipment.
Handling of small quantity and emergency orders.
Mode of transport time, cost, availability, reliability.
Special considerations for perishable and expensive
Who will bear the transportation cost?
Where should it be delivered? Warehouse/
distribution centres or direct to stores.

Execution of Merchandising plan Sourcing

Receiving/ stocking operations

The receiving operation involves inspection, recording,

checking and marking of merchandise.
Inspection of merchandise ought to be done
immediately after unloading from the truck. The
quantity, physical condition of the cartons/items should
be inspected. Any discrepancy found should be noted in
the deliverers and stores copy of the receipt/ freight bill
so that damage claims can be undertaken.
Recording the details of the receipt of the merchandise
in the prescribed form is next done.
Checking the item in terms of quantity and quality is
done after unpacking, as a next step. This is generally
done after invoice arrives.
Marking decisions (whether to mark, where/ what to
mark etc.) are taken depending on the nature of the
merchandise. Tags can be put manually or by machines.

Retailer-supplier relationship
While dealing with its suppliers, a retailer can adopt
two types approaches :
1. Transactional approach
2. Partnership approach.
The characteristics of Transactional approach

Short term or one off.

Many suppliers.
Disloyalty and lack of commitment.
Low switching costs, a little or no investment made in
Loose or no procedures.
Exchange centered on single person in firm
Changes in customer/supplier make little difference.

Retailer-supplier relationship
The characteristics of a partnership approach
Long term and ongoing .
Few suppliers.
Loyalty and commitment.
High switching costs, significant investments are made
on the partnership.
Strict procedural guidelines.
Many people and departments involved in exchanges.
Change in customer/supplier causes disruption.

In the recent years there has been an increasing

awareness of the benefits of a long- term oriented
relationship between a retailer and its vendors. So
more and more retailers are adopting Partnership
approach towards their suppliers.

Retailer-supplier relationship
To achieve competitive advantage it is essential

to focus on alliances, networks and supply

chain management (SCM). The supply chain
consists of all the parties that participate in the
retail logistics process.
In an attempt to have a closer logistical
relationship with the suppliers, the retailers are
adopting a technique known as CPFR
(collaborative planning, forecasting and
replenishment). CPFR promotes a holistic
approach to SCM among trading partners.

Retailer-supplier relationship

The interaction model of retail buying :

Retailer-supplier relationship

Retailer-supplier relationship

ECR ( Efficient consumer response) approach is :

Working together to fulfill consumer wishes better,

faster and at less cost"
Two fundamental principles of the approach:
Focus on consumers: Commitment by all members in
the supply chain to the act of providing consumers with
products and services that consistently meet or surpass
their demands and expectations
Working together :Organizations work together, work
internally and with their trading partners, to overcome
barriers that erode efficiency and effectiveness.

It allows consumer demand to control all supply

chain activities - trading partners team up to
maximize customer satisfaction & minimize total

Retailer-supplier relationship

Retailer-supplier relationship

Retailer-supplier relationship
Factors that improve vendorretailer relationship:
Detailed feedback on sales from the retailer to the

Co-operation and Co-ordination in marketing
Sharing of information on relevant consumer trends
and product/market trends and innovations.
Systems integration to facilitate information sharing
,includes sales data stock and delivery information
An understanding of the retailers target customer
and the brand image, that the retailer is trying to
build, by the supplier.
Complete understanding by the supplier, of the
retailers quality standards requirements both in
terms of product quality and compliance on delivery
and administration

Inventory management
Inventory/ stock management of Staple

Staple merchandise such as bread, milk, shampoo, light

bulbs etc need to be replaced at regular intervals by

the retailer. Over time the expected sales of this type of
items become very predictable and could be
determined by knowing the average per capita
consumption and number of customers who visit the
retailing outlet.
There are basically two systems followed 1. periodic
review 2. fixed order quantity systems.
In Periodic review (P) system the stock position is
reviewed periodically rather than continuously. A new
order is always placed at the end of each review and
the time between order is fixed. The quantity that is
required to replenish the stock back to a fixed
predetermined level, is the order quantity for the review
point. Demand between two orders varies so the order
quantity varies. So in this system the order quantity
varies but the time between orders remains fixed.

4. Inventory in supply chain


Inventory management
In Fixed order quantity system the stock of an item is
continuously reviewed. A reorder level is decided on.
Whenever the stock of the item equals the reorder
level, a new order is placed. The time between orders
can vary. In this system, the order quantity ordered is
always fixed (i.e. same) and is equal to the EOQ. EOQ
(Economic Order Quantity) is calculated by a formula
which ensures that the total cost is minimum. (Refer
to the class discussions for details).

Inventory management

Lead time is the lapsed time between the placement

of an order and its actual delivery.
Safety stock level is also known as buffer stock. It is
the extra quantity of merchandise that is stocked to
take care of delay in delivery and higher demand
during the lead time.

Inventory management
ECR & QR approaches:
The ECR (Efficient Consumer Response) approach has

been detailed earlier while discussing the importance of

building collaborative relationship with
The QR (Quick Response) approach is adopted by the
retailer to reduce the QOH (quantity on hand) by
ordering more frequently.The order size in this approach
is substantially reduced.
Some of the essential features of QR approach are:
Excellent relationship with the vendors and very close
monitoring of inventory levels to avoid stock-outs.
Effective co-ordination with vendors regarding
Share data with the vendors to improve inventory

Inventory management
EDI (electronic data interchange) with the vendor
helps the QR inventory planning.
Floor ready merchandise is used in conjunction with
QR, so that the merchandise can be directly put on
shelf without preparatory work. Suppliers perform
functions that might otherwise take place in
retailers distribution centres. Pre-retailing activities
like labelling/ ticketing is done at the vendors end .
Both ECR and QR approaches to stock control are
aimed to cut all stock holding by the retailers to bare
minimum. But essentially ECR approach is adopted for
food and fast moving items which have relatively
stable demand patterns and higher volumes, while QR
approach is adopted for higher value and lower volume
products (clothing and home furnishings as examples).
QR involve supply techniques that allow retailers to
respond more effectively to fashion and seasonal sales

Inventory management
VMI (vendor managed inventory):
In this system,a retailer passes the responsibility for
managing stock levels with in the stores to the
supplier. The retailer provides the information that
allows the supplier to schedule its production and
finished stock level so that automatic replenishment
system is guaranteed.
In certain cases (such as batteries or spices) the
vendor takes on the responsibility to provide shelf
stacking service as well.The suppliers employee
keeps track of the shelf stock and replenishes the
same during his visits.
VMI is similar to QR but here the supplier has more
control over range development.
Obviously VMI can not operate without a true
partnership between the retailer and the vendor. It
takes the role of category captain one step further.

Inventory management
Inventory valuation methods in retailing

Cost method and retail method are two different

kinds of accounting systems a retailer can follow.
Depending on the type of items a retailer can follow
either of the two accounting systems.
In cost method the valuation of merchandise is done by
adding cost and transportation charges. A retailer can
carry out cost method by physical inventory system or
perpetual inventory system.
Physical inventory involves counting each item in
stock. Physical inventory is carried out periodically
( once or twice in a year). (Cost is coded on the
tag). At the end of this exercise the inventory value
of each item is determined. A retailer following cost
method by physical inventory system can derive
gross profit only after a physical inventory is taken.
This imposes limitation on planning process because
physical inventory is taken only once or twice a
year. Another limitation of this system is that the
inventory losses during the period is not computed.

Inventory management
Perpetual inventory system (also known as book
inventory system) is based on the record keeping
entries. In this the purchases are regularly added to
the existing inventory and the sales subtracted in each
transaction to determine the new current inventory. As
the current stock is updated continuously the problem
of infrequent financial analysis is not there in this
system. This system also allows to compare the actual
inventory with the book inventory at any point of time.
To take care of changes in cost of the merchandise
either FIFO or LIFO method can be adopted. FIFO
assumes old merchandise is sold first, hence the item
is assumed to be sold based on old cost structure .
LIFO assumes that new merchandise is sold first,
hence the current sale is made based on current cost
Cost based method obviously is not suitable for
merchandise with rapid changes in cost structure.

Retail Marketing & Promotions

of Merchandise

Retail Marketing & Promotions of

All the activities done by a retailer should
ultimately culminate in selling its wares and result
in profits for the store. Hence a sound marketing
strategy is most essential for the retailer.
It is essential to create an unique experience for
the customer, so that he patronizes the retail
shop/chain as a loyal customer.
Price plays one of the most important role in
todays competitive market. Customers are
looking for greater value for their money than
ever before. Retailers have to make profit in
fiercely competitive environment through right
pricing strategy.

Retail Pricing Strategy

The two opposing pricing strategies that prevail
in the retail industry are:
Everyday Low price (EDLP) strategy
High / Low pricing strategy.
EDLP Pricing strategy:
EDLP strategy implies that the prices are
kept somewhat lower than the other
retailers. By adopting this strategy of
deliberately keeping the prices consistently
lower than the other retailers who might be
offering only occasional discounts the
retailer tries to establish a goodwill and
reputation of offering a stable low price.
The name should have rather been
Everyday stable prices strategy.

Retail Pricing Strategy

EDLP strategy is adopted by many successful retail
chains like Wall-Mart, Kmart, Target, Tesco etc. It is
considered to be far more successful strategy than
High-Low pricing strategy in retail business.
Benefits of EDLP strategy are Customers faith in the stores keeps building up
ensuring customer loyalty.
Lower adverting expenditures.
Inventory management is better because it
reduces high variation in demand.
Frequent sales promotions cause high variations
in demand this is avoided in EDLP strategy.
Lesser mistakes related to prices occur because
of lesser price changes.

Retail Pricing Strategy

High / Low pricing strategy:
The retailers who adopt this strategy sell most
of their merchandise at normal price keeping a
good margin but consistently have sales
promotion of select items. By having such sales
promotions on a regular basis they attempt to
create excitement for the customers to visit
their stores.
Many retailers in India and around the world
adopt this pricing strategy and have had fair
success in retail business.
Many in the niche market are able to maintain
high prices consistently. Many fashion designers
adopt this pricing policy of selling high quality of
products without compromising on prices.

Retail Pricing Strategy

Benefits of high/Low pricing strategy are :
They can address different segments of

clients. For instance when a new fashion

item is launched it is priced high for high
income group clients. When the hype is
over it is sold at discount prices for
another segment. Lot of excitement is
created during such discount sale,
creating a festive atmosphere.
Slow moving items can be pushed by
offers with out making it obvious amidst
the other promotion offers that are
continuously underway.
EDLP is hard to maintain. It is hard to sell
merchandise at low price continuously.

Methods of Product Pricing

Fundamental methods of retail pricing are:
Cost oriented method wherein the retail price is
determined by adding a fixed percentage to the
cost of merchandise. In this the retailer
attempts to get the best deal from its suppliers
and then decides how much markup he should
keep to arrive at a reasonable retail price.
Demand oriented method implies that the
objective is to determine the correct balance of
margin and sales so that the profit can be
maximised. This is popular for pricing non
branded product. Mark down which is
discounted over initial price is often adopted to
maximise profits by clearing the stock or selling

Methods of Product Pricing

In India however the retail price is usually pre

determined by the manufacturer because the MRP

(maximum retail price) needs to be printed for all
branded products by law. So that the only option
left to the retailer is to decide how much lower
than the MRP he should sell.
The Private label segment, consisting of store
brands, is slowly growing in India. In this segment
the retailer being the manufacturer has the liberty
of fixing the price of the product independently.
Private label segment is generally cheaper than
the branded segment. In the past the private
brands were considered mid-tier products. In the
US the perception is changing because many
retailers are introducing premium private brands.

Methods of Product Pricing

The special or additional pricing practices
adopted by the retailers are:
Leader pricing to attract customers certain
items are priced lower than normal to attract
customer flow. It has been seen that
customers who come to buy these loss
leaders end up buying other items in the
stores also thereby increasing the total sale of
the stores. Items of daily use such as bread,
milk, egg etc often made loss leaders in
super markets.
Odd pricing /psychological pricing Marketers
often resort to this type of pricing in order to
overcome psychological barriers to pricing.

Methods of Product Pricing

To remain within a price brand the firm sets the
price of the product at an odd figure like
Rs.98/- instead of Rs.100/-.
Price bundling in this two or more items are
sold for the price of one. A toothbrush is often
sold with a tooth paste for example. Often a
less desirable merchandise is bundled with a
high demand merchandise.
Multiple unit pricing this is bundling of two or
more units of the same product. When
independently sold the unit price of the
product is more than when it is sold as a part
of a bundle. Eg:- Maggi noodle of bundled

Sales Promotion

Sales promotion activities are typically conducted

to influence customers buying behaviour during a
specific and short period of time.
Retailers generally organise sales promotions to:
attract new customers
introduce a new item or whole new product line
dispose off excess stock after the end of a
To counter the promotions of competitors.
To address a niche market which does not justify
full fledged advertising
To create excitement leading to greater
popularity of the retail store

Sales Promotion

The factors that are considered while deciding on

sales promotion are :Timing o the promotion when it should start?
How long should it last?
What should be the type of sales promotion?
The common types of sales promotion are:
Price promotions: A special price is announced
for specific items for a limited period of time.
This a very common form of sales promotion. But
not all such promotions are effective, because it
is observed that many customers stop visiting
after the promotion is over.
Trading stamps: These stamps have
denominations. These are given to shoppers as a
bonus when they buy a certain value of purchase
at the stores. After the retailer has collected a
number of such bonus stamps, he can redeem
these for various gift items.

Sales Promotion
Contests and games: This is to create
excitement. This may be in the form of
completing a puzzle, or picking up a lucky
Free samples: This is often done to promote
a new product by a manufacturer.
Coupons: These are distributed to entitle
customers to get a product at a reduced
Special events: Fashion shows, magic
shows, mini rock concerts are conducted
and often celebrities are invited to

Sales Promotion
Some methods followed for laying down a
promotion plan or fixing a promotion budget are:
Margin analysis method:
In this the retailer starts with a conservative
budget for advertisement. Thereafter evaluates
this budget against the performance and makes
the adjustments for the next month/period. This
is a scientific method.
Intuition method:
Here the retailer does not do step by step
evaluation but follows his intuitions to lay down
the plans and fix up the budget.
Percentage of sales method:
Voume of sale or turnover is a logical basis for
fixing the promotion budget. But here the type
and nature of merchandise should also be

Publicity is the method for generating unpaid
impersonal communication. . This is done by
establishing a good rapport with the press. A free
publicity helps the retailer. The customer is
convinced more with an unpaid communication.
This form generates new customers. This helps
word of mouth publicity also. For example
inauguration of a store or a special event getting
an extensive coverage in the TV or Newspaper. An
unpaid item /article in the media, if regarded as
impartial and unbiased, can boost the image of a
retail business immensely.
Word of mouth is a very effective form of publicity.
This may be slow but it helps to create a very
credible image in the mind of prospective
customers. This mode of communication can be
very harmful if its negative in nature.

Different types of retail advertising are:
Data base marketing This form of marketing
implies generating a large data bank and
then targeting customers in innovative forms.
Newspapers / magazines
Shopping guides and yellow pages
T.V / radio
Bill boards and banners
Advertising with the vendors cooperation
Special events / sponsorships to improve
stores image and goodwill.

Information Technology in

Role of IT in Retail Industry

The traditional retailing was easier to manage
because of its size, scope and uncompetitive
nature; and usually the shops were managed
by the owner-manager. But the modern retail
formats, which are superstores and large
chains owned by large organizations, are
difficult to manage without an efficient and
reliable IT system in place.
IT adds value in retailing by
Improving efficiency of Supply Chain
Improving the Shopping experience
Business Optimization

Role of IT in Retail Industry

Improving Efficiency of Supply Chain
IT helps in having an agile supply chain
network that seamlessly connects demand,
supply and product.
With so many different outlets and channels,
multiple hand-offs, and high frequency of
replenishment, developing and managing an
efficient supply chain remains one of the
primary challenges in the retail sector. IT
provides invaluable support in these areas.
Merchandizing systems impact top-line
revenues and need to be configured,
customized and managed effectively. To
achieve this, large

Role of IT in Retail Industry

amounts of data needs to be effectively
mined and leveraged to carry out effective
forecasting, assortment planning, and
collaboration with suppliers. IT provides
solutions in these areas.
Improving the Shopping Experience:
To achieve this, retailers use IT Solutions for
CRM to retain & acquire customers, to
analyze consumer-buying behaviour, buying
patterns of loyalty cardholders etc. Indian
retailers like Pantaloon, Caf Coffee Day,
Barista and Shoppers Stop etc use CRM

Role of IT in Retail Industry

Business Optimization:
To achieve it, some of the IT tools are:
Business Intelligence tools :- These tools are for
Data warehousing, data mining, Online
Analytical Processing (OLAP). Business
Intelligence tools are very versatile that
analyze sales data from the POS, determine
trend of sales for the categories and subcategories of merchandise sold from dispersed
stores. These enable the retailers to understand
the frequency of sale, geographical spread of
sales, types of sold merchandise and also
provide what if analysis specially for projected
sales and price changes .

Role of IT in Retail Industry

RFID (Radio-frequency identification)

Currently RFID is profitably being used in retail
firms of developed countries primarily in two
sections namely in supply chain, warehouses and
Retail front. It ensures individual articles tagged
by RFID enable quick billing and to ensure
automated stock keeping.
ERP ( Enterprise resource planning) packages:
ERP software applications help in resource
planning, management control and operational
control. It is a multi-module application software
that integrates activities across functional
o Reputed ERP solution packages are SAP retail, oracle
retail, Retek, JDA, QRS and GSI. These retail packages
are costly but the advantages are manifold. Cheaper
versions are now available for smaller retailers.

Role of IT in Retail Industry

ERP retail solution like SAP for example supports:
product development, which includes, trend analysis,
and collaboration with partners in the supply chain;
sourcing and procurement, which involves working with
manufacturers to fulfill orders according to strategic
merchandising plans and optimise cost, quality, and
speedvariables that must be weighted differently as
business needs, buying plans, and market demand
patterns change;
managing the supply chain, which involves handling the
logistics of moving finished goods from the source into
stores ;
selling goods across a variety of channels to customers,
which requires marketing and brand management;
managing mark-downs
capturing customer reactions, analysing data, and using
it to optimise the next phase of the design process.

Information systems in retailing

The different information systems in retail
Merchandising system :
- This is the core system that addresses the
information need of many activities. It
links purchase to inventories receiving
account etc.
Sales and marketing system :
- This supplies vital information to cover the
market effectively. So it is linked to
merchandising system.
Point of sales system :
- This is for the sales department at retail
This helps in billing, items wise
analysis of fast and slow moving items etc.

Information systems in retailing

Financial accounting :
- Covers two main areas
1. Accounts payable for the purpose
of payment and general ledger
2. Accounts receivable which helps in
credit management.
Attendance and payroll :
- For attendance, absenteeism, salary, loan etc.
of employees.
Administrative systems :
- Complaint processing of A/c, lighting,
furniture, fixtures etc. maintenance records.
- Helps in controlling energy costs.

Information systems in retailing

Advantages of computerisation:
Faster data accessibility
- a control data bank is created and several
users can access the data.
Improved stock maintenance
- prevents out of stock situations
- eliminates unnecessary stocking of items
Decreases chances of mistakes
- ensures accuracy of information
Tracking paying buying patterns
Better financial control
Better decision making
Reduction of manpower cost

Information systems in retailing

Limitations of computerisation
Cost factor - Fully integrated ERP system
costs between 50 lacs to 2.0 crore. But
cheaper versions of 5 to 6 lacs are also
available with reasonably good range of
solutions adequate for smaller stores.
Developing and maintaining data and the
system needs expertise and skill.

Database management in

What is data warehousing & how does it help ?

In retailing there are several operational data
bases catering to specific departments/areas
such as vendor management, inventory
management, marketing management,
financial management etc.
Data warehouse is created by copying selected
parts of these data bases which are required
for decision making.

These copied data are read only data. The

data warehouse is mainly for decision making.
Analysis is required for decision making.

Database management in

Following are the typical analyses made

possible by proper data warehousing
competitive price analysis, price elasticity
markup/down opportunity analysis
promotional price analysis
branded/private label analysis
promotion performance analysis
What is DSS ?
Decision support system is a computer aided
methodology of using the database available
in the data warehouse. It summarises
information to help decision making. MIS is a
variation of DSS which is customised for
senior level managers.

Database management in

What is data mining ?

This is a way by which specific queries can be
answered by going through the exhaustive data
(in data warehouse) in a systematic way. This is
done by association sequencing (linking events),
classification, clustering (subgroups in the data),
forecasting etc.
What are the uses of data bases for retailers ?
Customer profiling and analysis :
-detailed information about customers
in the database allows segmentation and

leads to insightful decisions.

Database management in

Targeted communication
- avoids the waste in the case of mass media by
only communications with potential buyers.
- makes it cost efficient
Loyalty programme
- preferred customer cards (loyalty programme)
can be given to select loyal customers.
(as per CRM it is eight times cheaper to retain
an old customers than makes a new one.)
Merchandise management
- Can help time merchandising activities
and decision making process.
Store localization
- study the differences between stores.

Software systems for retailing

What are the aspects that need to be considered
for selecting a suitable software system for retail
Selection of software platform :
RDBMS (Rational Database Management
System) is now the most used data base
system in the world.
There are back-end data base engines
which are supported by front end tools. If
required both can be integrated even at
a later date.
Popular ones are oracle, sky base, SQL
server etc.

Software systems for retailing

Selection of Networking :
Networking software allow several computers to
provide and access information to and from each
other. The popular solutions are UNIX, Novell and
Windows NT.
Choice and development of retail application:
Development of retail application is a specialized
job. The selection of the application provides
needs to be done judiciously.

Hardware tools used in

What are the main and crucial hardware
components used in retailing ?
Point of sale (POS) machines are placed at
check out counters. POS machines gather
latest information from the back-end systems to
perform billing and customer interface related
activities. After each sale transaction POS
sends the information to the back-end system
for updation of data. POS machine has an
inbuilt monitor, keyboard and a small printer.
Bar code scanners :- Bar-Coding is a technology
by which a specific numerical code is
transferred in the form of black and white bar

Hardware tools used in


The width and size of the bars distinguishes the

numerical code transferred. These bar-codes
are scanned with the help of Bar-CodeScanners. The computer thus reads the item
Main computer system
Server is the hardware that functions as the
nerve-centre for storing and processing of all
the data that gets generated at different
points. A multi-location retailer will require
servers at every location and a central
server at H.O.
Computer nodes are the PCs that are used
by various users in different departments in
a retail organization.